Korea to Expand Aid for Vulnerable Borrowers as Rates Climb

[CAPTIONS]
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol (second from left), Financial Services Commission Chairman Lee Eok-won (third from left), Financial Supervisory Service Governor Lee Chan-jin (first from left) and Bank of Korea Assistant Governor Park Jong-woo (fourth from left) pose for a photo ahead of discussing recent domestic and overseas financial and foreign exchange market trends at a market conditions review meeting held at the Bank Hall in Jung-gu, Seoul, on the 21st. Reporter Cho Tae-hyung

South Korea’s government will unveil measures to support vulnerable borrowers as rising global long-term interest rates increase the debt burden on households and self-employed business owners. The package will promote debt restructuring for small business owners and individuals and expand funding support for low-income and vulnerable borrowers.

Deputy Prime Minister and Finance Minister Koo Yun-cheol held a market situation review meeting on the 21st at the Bank Hall in Seoul with the Financial Services Commission, the Financial Supervisory Service, the Bank of Korea and other related agencies to discuss financial and foreign exchange market trends and policy responses. The meeting focused on risk factors in domestic and overseas financial markets, including rising long-term rates in major economies, exchange rates and household debt.

Long-term government bond yields in major economies such as the United States, Japan and Europe have recently climbed to their highest levels in decades, driven by rising fiscal spending, increased bond issuance and uncertainty over the situation in the Middle East. The U.S. 30-year Treasury yield rose to 5.19% on the 19th of this month from 4.61% at the end of February. Domestic yields are also rising, led by ultra-long-term bonds.

The government is particularly wary of the household and self-employed debt burden that grew during the COVID-19 crisis. “We will prepare a support plan for vulnerable borrowers to ease the debt burden on small business owners and the financial burden on low-income and vulnerable borrowers, and announce it as soon as possible,” Koo said. The measures will include promoting debt restructuring for small business owners and individuals and expanding funding support for small and medium-sized enterprises, low-income earners and vulnerable borrowers.

The government assessed the won-dollar exchange rate as stable. The rate, which had climbed to the 1,550 won range in early July, fell to 1,390 won on the 19th of this month — its first return to the 1,300 range in 11 months — helped by a record current account surplus and an easing of foreign stock rebalancing. Still, the government said it would respond to market volatility given remaining uncertainties such as the situation in the Middle East and monetary policy in major economies.

Regarding the sharp decline in net external financial assets in the second quarter, the government explained that it reflected a rise in the value of Korean stocks held by foreign investors amid a domestic stock market rally. Net external claims, by contrast, rose $2.3 billion from the previous quarter to $367.8 billion, while the first-half current account posted a record surplus of $191 billion. The government assessed the country’s external soundness as favorable.

Household credit recently surpassed 2,000 trillion won, but the ratio of household debt to gross domestic product (GDP) fell to 85.3% in the first quarter of this year from 89.1% in the first quarter of last year. The government said it would continue managing household debt while also pressing ahead with existing market stabilization steps, including supplementary measures for single-stock leveraged products.